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Trump-supporting farmers are big losers in the trade war

US farmers will be hit by Donald Trump’s trade war for years, but some UK businesses could benefit as China look set to import more pork.

byGarry White

23.04.2019

US farmers could be in for a bumpy 2019 – even if the trade dispute is resolved. Soya bean growers in Trump-supporting states received significant government support last year, as sales to China plummeted. But things look set to get worse in 2019, as the Chinese pork market is in crisis and the rest of the world continues to be cautious about US livestock practices.

The biggest farming export from the US to China has always been soya beans. One out of every three rows of the crop grown by American farmers used to be sold to China. The value of these exports was about $14bn (£10.8bn) out of total agricultural exports to the Asian nation of around $20bn. Soya is mainly used as a low-fat pig feed and demand is high because China is the largest consumer of pork in the world. But Donald Trump’s trade war has changed all of this. Trailing three-month Chinese imports of US soya beans is now at the lowest level in three years, at a time that should be the peak season. This is due to retaliatory tariffs introduced by China on soya beans in response to Donald Trump’s tariffs on Chinese goods.

The amount of soya beans sitting in storage in the US hit a record high of 3.7 billion bushels in December, according to data from the US Department of Agriculture. That's equivalent to about 80pc of the total US harvest last year. Farm income declined so much that the Trump administration made $12bn in aid available to farmers hurt by his tariffs last year. This softened the blow, but the administration cannot provide this level of support indefinitely.

Of the top ten soya bean producing states in 2017, eight of them produced a win for Donald Trump in the 2016 presidential election – Iowa, Nebraska, Indiana, Missouri, Ohio, South Dakota, North Dakota and Kansas. Only Illinois and Minnesota failed to back the current incumbent of the Oval Office. The China trade dispute looks set to end soon, with Beijing expected to agree to buy more agricultural goods from the US. But there’s a problem here too. Even if China wanted to buy more soya beans, demand is waning fast because the Chinese pig industry is in the throes of a major crisis.

China and other countries in Asia have been hit by African Swine Fever (ASF), a particularly nasty infection that kills almost 100pc of pigs that it infects. China’s pig herd fell by 16.6pc year-on-year in February, with the number of sows falling 19.1pc. As a result, China’s pork production is expected to fall by more than 20pc this year.

The disease continues to spread and eradication can often take several years, meaning that Chinese soya bean demand could be suppressed for a long time. This is very bad news for US agricultural farmers in states the president needs to win in 2020, as they are unlikely to see any benefit at all from Trump policies apart from the aid package. Indeed, long-term forecasts from the Department of Agriculture indicate that the American soya-bean export market won't recover to pre-trade-war levels until 2024. China is also investing in producing more of the crop to compensate, with soya bean acreage in the country increasing 16.4pc this year, according to its National Bureau of Statistics.

All of this means that soya bean farmers look set to feel significant pain for a number of years. However, there are some positives for participants in the farming industry – the global price of lean hogs has soared by 67% since the start of March, as China is expected to import a significant amount of hogs. On Wednesday last week, Tang Ke, a department director at China’s Ministry of Agriculture and Rural Affairs, said pork prices may rise by more than 70pc to record levels in the second half of 2019.

Chinese imports of pork are expected to double this year. However, this may not be the boost for US pig farmers that it could have been. Leaks from the trade talks suggest that China may buy more pork to meet its growing supply deficit, but it is not willing to allow animals to be imported that have been treated with a growth drug – ractopamine. It is prohibited in China and around 160 other countries, but is used in roughly half the US hog herd to boost their yield.

This implies there is a real opportunity for UK farmers and related industries. Mid-cap listed meat processor Cranswick has around a 55pc share of UK pork exports to China and other exporters include the unlisted Karro and Tulip. Another company that could benefit is animal genetics group Genus. The group has already said the ASF issue will keep a lid on growth in the near term, but management think the epidemic could be positive for the company over the next few years. As pig herds continue to reduce, pork prices should rise while demand for pig imports from the US, Europe and Brazil – all territories in which Genus has a meaningful presence – is likely to rise.

All of this demonstrates that trade wars are not good or easy to win, as famously declared by President Trump. They increase domestic prices, reduce demand for exports and can damage industries for a substantial period of time. Unfortunately, it’s a lesson US farmers are learning to their cost.

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